Carver Corporation Announces the Resignation of Three Directors By Stereophile Staff February 1, 1998

On January 28, Carver Corporation announced the resignations, effective January 21, 1998, of Mr. Thomas C. Graham and Mr. John F. Vynne as directors of the company so each can devote more time to his respective business. Carver Corp. also announced the resignation of Mr. Stephen M. Williams as a director of the company effective January 27, 1998. Mr. Williams is pursuing other business opportunities that preclude his continued service as a director of Carver Corp.Carver Corp. also announced that it has been notified by the Nasdaq Stock Market that the company's common stock will be delisted at the opening of business on March 27, 1998. Nasdaq's delisting notification is based on its review of the price data covering the 10 consecutive trade dates prior to December 22, 1997, and its determination that Carver Corp.'s common stock has failed to maintain a closing bid price greater than or equal to $1. For continued listing on the Nasdaq National Market, the common stock must maintain a minimum bid price of $1 or, as an alternative if the bid price is less than $1, maintain net tangible assets of $4 million and a market value of the public float of at least $3 million. Based on the shares outstanding of its Common Stock, the market value of Carver Corp.'s public float on January 27, 1998 was less than $3 million. Following delisting, the company expects its common stock to trade in the over-the-counter market on the electronic bulletin board of the National Association of Securities Dealers, Inc.

For the past 20 years, Carver has been designing, developing, manufacturing, and marketing audio and home-theater products to the mid- to high-end audio entertainment systems market.

Last week, Phoenix Gold International announced its acquisition of the marketing assets of Carver Corporation, including the Carver name, along with plans to "actively rebuild the once highly regarded Carver brand, beginning with a full line of new consumer and professional audio products."Phoenix Gold began its Carver quest when it acquired the company's Professional division in 1995, and it still manufacturers and distributes a full line of power amplifiers for the pro market. At that time, Carver Corporation continued creating and selling products to the consumer market, only to run into financial trouble and a NASDAQ stock delisting in early 1998. After a brief stab at direct sales, Carver eventually ceased operations upon filing for Chapter 11 bankruptcy protection in 1999.

Phoenix reports that a final agreement on the present acquisition was reached with the US Bankruptcy Court in Seattle, WA on January 14, 2004. It authorizes Phoenix Gold to take ownership of the Carver name for a full line of consumer and professional products.

In a company press release, Phoenix Gold's Roland MacBeth states, "This represents the final step in a long process to develop a full-line product strategy for Carver, using the varied resources of Phoenix Gold International. Our engineering group and product development teams have a complete roadmap in place to rebuild this respected brand into an active, healthy, innovative participant in the audio marketplace over the next few years. Our intention is to re-establish the Carver tradition through a comprehensive collection of consumer and professional electronics products bearing the Carver name."

Phoenix Gold was founded in 1985 and is based in Portland, OR. The company designs, manufactures, and distributes products for aftermarket car audio, professional sound installations, custom audio/video, and home theater applications. Its products are currently sold under the brand names Phoenix Gold, Carver Professional, and AudioSource.

Robert W. Carver thinks his company, Carver Corp. of Lynwood, Wash., just north of Seattle, will be one of them. It's too early to say whether he's right--particularly considering that the Japanese now dominate Carver's industry, consumer audio products--but so far, the signs are promising. Carver has identified and corrected his mistakes, and he has a team in place that seems to be doing everything right.

Carver, 46, is used to being a winner. He founded Phase Linear, which made highly regarded amplifiers, in 1971; after selling out in 1977, he founded Carver Corp. in 1978. He enjoyed acclaim for many years as both a successful businessman and a technological innovator.

"Since 1971," Carver says, "I've been CEO of a company--first Phase Linear and then Carver--whose revenues grew 20 to 40 percent, year after year, and whose earnings grew 40 to 90 percent, year after year."

Last year, though, Carver Corp. showed a drop in sales, from almost $25 million to $20.5 million, and an operating loss of more than $1.3 million--"a very humbling experience for me, both personally and professionally," Bob Carver says.

Carver Corp. makes products directed toward the upper reaches of the audio market. You will not find its receivers, amplifiers, and loudspeakers in the big electronics chain stores, but rather in locally owned stores that specialize in high-quality stereo gear. A Carver stereo receiver, say, may well cost two or three times as much as an apparently comparable Japanese component sold by a national chain.

Over the years, Carver products were able to command those higher prices from a growing number of buyers, for two reasons: As far as many experts were concerned, the Carver products really did sound better; and Bob Carver came up with labels for his innovations that made them seem as special as they were.

When he introduced his first loudspeaker, in 1986, he didn't mince words: He named it The Amazing Loudspeaker.

Reviewers did not take issue with that label; Julian Hirsch, writing in Stereo Review, said of the loudspeaker, "Its overall sound is spectacular, its bass performance surpasses that of almost any other speaker one might name, its stereo imaging is outstanding ... and its price is ridiculously low for what it does and considering what comparable products cost."

Carver said his preamplifiers and receivers enhanced stereo sound with what he called "sonic holography"; his compact-disc players used what he called a "digital time lens" to soften the harshness of some digital recordings. In those cases, and in others, knowledgeable people could hear the improvements that Carver claimed his innovations produced. Carver may have sold the sizzle, but he also served the steak.

Even though Carver's products are costly by most standards, their prices fall well short of those for the most rarefied audio systems, which can cost as much as $100,000. For years, Carver intrigued audio buffs (and infuriated some) by building amplifiers that mimicked the performance of extremely expensive competing machines, but cost only a fraction as much. "The high-end audio components have taken on a cult following," he says. "Often, the price is ridiculous for an audio component, but about right for a piece of sculpture."

By 1985, Carver had a lot going for him--a glowing reputation, widely acclaimed products, a marketable American personality in a field otherwise dominated by Japanese competitors, a network of 460 strong dealers.

That year, he took his company public. Many small entrepreneurial companies find going public a wrenching, disruptive experience, but Carver did not: "Going public was fairly painless for us. It didn't divert us significantly." It was later that things started to go wrong.

"At the time we went public, and for about a year after that, the company's management team was home-grown, and we'd been very successful," Carver says.

"But one of the promises that I made to the investment-banking community was that immediately after going public, we would begin to develop in-depth management"--which meant bringing in a few new people from the outside.

As to how well he performed that task, Carver says simply, "I blew it."

Although many entrepreneurs yield control reluctantly, Carver liked the idea of adding more managers. His office is just a few steps away from his company's engineering department, a place piled high with audio components in varying states of disassembly, and that is where he would rather be.

"I've never thought that Bob Carver was a great manager," he says. "I'm a physicist by training, and a circuit designer by profession, and an entrepreneur and manager only by special affinity and by happenstance. So I really thought that by bringing in very good, experienced, talented managers, my burdens would be eased and I could devote more of my time to research, and to developing products, which is what I like to do."

Instead, he says, "corporate expenses exploded, and productivity went down."

Eileen M. Rutledge, 31, a Carver employee since 1980 and chief operating officer since early this year, thinks the problem was that the new managers didn't understand how Carver Corp. worked.

Carver has always been a company that tried to cultivate a close relationship with the people who make its labor-intensive products.

The new managers, she says, wanted to move the company toward a more automated and impersonal operation, even though the plant's output--a few thousand units a month--makes Japanese-style automation impractical.

At Carver, she says, "the employees like the products"--listening to music all day is actually part of the work--and the company shows it likes its employees, by, for example, offering day care on the premises. "That atmosphere is a very good one," she says. "It helps you retain good employees. We have single parents who were previously on welfare who never could have afforded to work, because of the high cost of day care."

Unfortunately, she says, some of the new managers felt that because employees wanted to work at Carver, "somehow that made them less productive. But you can enjoy your job and still work as fast as you possibly can."

In the meantime, the company's strength in the marketplace was starting to ebb.A year after the company went public, Carver says, "I personally stopped doing the marketing effort, in terms of getting the reviews and dealing with the editorial people at the magazines. In our business, a good review means product success, and no review means that ultimately people forget about you. We always had a steady stream of reviews, and then they stopped, because I dropped the ball."

For years, Rutledge says, the company resisted introducing new models with merely cosmetic changes, because "we didn't need to do that; we had technology that no one else had. We still have that technology, but people are tired of seeing it in the same old box."

In other words, Carver wasn't introducing enough new products to keep customers interested--and as a result, its dealer base began to erode, until now Carver has only about 230 dealers, half as many as it had three years ago.

Last year, Carver named a new marketing director, Mark R. Friedman, hiring him away from the American branch of a Japanese audio company. "I did some homework with some dealers I knew," Friedman says, "and the same word came back every time"--the product line was stale, the company didn't know where it was going, and it wasn't communicating with its dealers. "The dealers felt that I had the strengths to change those things, and if I changed them, the potential at Carver was incredible."

Thanks to Friedman, Carver now communicates constantly with its dealers--present and potential--telling them what it's doing and asking for their ideas. The company has even changed the color of its components, from a relatively light gray to a darker shade, in keeping with dealers' comments.

In years past, Carver did not offer a full line of components, restricting itself to those where it had a clear technological edge. "We found out that the dealers wanted us to broaden our offerings," Friedman says. As a result, "in January we'll ship our first tape decks," followed in February by Carver's first compact-disc changers. Carver is also modifying existing products, making both cosmetic and internal changes. By the time the line is completely revamped, the company will have introduced more than 20 products that are in some sense new.

Bob Carver has reconciled himself to the changes in his company's marketing philosophy: "I used to believe that a new product had to have something special. That's been the key to my success, and my company's success. But I've learned--and Mark Friedman basically taught me this--that a product can have a new faceplate, or it can be new in name only, and the marketplace will often see it as something tremendously new."

Some of the new products--the tape decks, for example--will be manufactured in Japan; Carver has made part of its line there for years. But many of the new products are being assembled by the 130 people working on the plant floor just outside Eileen Rutledge's office.

And to win back its dealers, Carver not only must offer appealing new products but also must get them from that plant floor to the stores when it says it will.To meet that challenge, Carver has not automated, but instead it has found other ways to improve productivity. "The material flows were inefficient," Rutledge says. "Now it's a very logical flow." Before, workers had to pick up and put down one unit 22 times; now they pick it up once, "and that's when they bag it. That improves quality."

On a management level, Carver has smoothed the path from the engineering department to the plant floor by making a new-products manager the bridge between the two.

That way, Rutledge says, "instead of engineering chucking something over the wall and manufacturing standing there with arms spread to catch it," the bugs in a new product can be worked out before it goes into full-scale production.

As a result of such changes, she says, production has been increasing 35 percent a month this year, even with all the new products.

"From time to time," Rutledge says, "Carver's been lopsided. Right now, we feel we've got a stool with three legs on it."

Carver Corp.'s comeback may be well under way by this fall--much depends on how many dealers rejoin the fold, and Friedman won't have a clear reading on that until October. But the company has the resources to ride out the storm even if full recovery takes a while.

Bob Carver originally planned to spend the proceeds of the 1985 public offering on developing and marketing an advanced television monitor/receiver, but the rising interest in--and confusion over--high-definition TV persuaded him to pull back from that project. As a result, Carver Corp. has plenty of cash and very little debt.In addition to its consumer electronics, Carver also makes professional amplifiers, the kind used by touring musicians, and sales of those products have remained strong even while consumer-product sales have faltered.

However bright the long-term prospects, Bob Carver is clearly impatient to break into clear weather again as quickly as possible. He speaks of the critical days ahead with the grimness and determination that hard times and 80-hour workweeks can generate:

CARVER CORP.: Defaults Under Plan & Committee Moves to Convert--------------------------------------------------------------Carver Corporation, its Unsecured Creditors' Committee says, hasfailed to make distributions to creditors that are requiredunder the Company's Plan of Reorganization confirmed by the U.S.Bankruptcy Court for the Western District of Washington onDecember 17, 1999.

"The Debtor has breached the terms of its Plan ofReorganization," Warren L. Erickson, Esq., in Seattle tells theBankruptcy Court.

The Committee asks Judge Steiner to convene a hearing on June13, 2003, to consider converting the case to a chapter 7proceeding, liquidating the Company's assets, and dividing-upwhat's left among the Debtors' creditors.

Carver Corporation -- a consumer hi-fidelity audio productsdesign and manufacturing company -- filed for chapter 11protection in May 1999 (Bankr. W.D. Wash. Case No. 99-05793)after creditors filed collection suits and started making a runfor the company's assets. The Company filed for chapter 11protection and confirmed a long-term pay-out plan.

Yep OBI it is a real shame that the art of professional wood working is going by the wayside. I bought a solid oak stereo cabinet kit, (You finish it yourself) in 1978. Although i really didn't know what I was doing when it came to finishing it and sanding, it turned out fairly well and I am still using it today and it is as solid as the day I bought it. It seems that in this day and age as fast paced as it that younger people just don't take the time to slow down and really enjoy life, Oh well maybe one day we will take our china controlled lives back.

Just came back from Lynnwood/Seattle, (4 Hydros). I can't believe what I saw from the HWY. How distressing, the building I worked on for Bob, in the break out real soring era of it's day W/employee daycare & smoking court yard of plants is NOW leveled.......completely.............plumbing, pavement, & all concrete hauled away. Nothing but memories. How utterly Sad.............the finality of it all.........How dare they.